Understand The Basics Of Mortgage
At times, the word ‘Mortgage’ creates confusion when it comes to taking loans. Here, some basic features of mortgage are discussed in order to understand it in a better way.
Mortgage is a legal contract between a borrower and a lender. A borrower can take funds from a loan lending association, and give them the authority to keep his property in possession.
This gives a guarantee and an assurance to the lender in case the borrower becomes unsuccessful to pay the loan.
There are many types of mortgage. A borrower can opt any of these types according to his requirements.
Here are some different types of mortgages.
• Fixed rate mortgage
• Balloon rate mortgage
• Variable rate mortgage
In case of a fixed rate mortgage, loan is at a fixed rate throughout the mortgage phase. With this type of mortgage, you need to disburse a fixed monthly installment for a fixed period of time.
So, if interest rates go up or down in future, your monthly installment will always be fixed. Due to this, this mortgage is very popular. The repayment phase of this type of mortgage may fluctuate from 3 years to 25 years.
Balloon rate mortgage is a singular type of mortgage. This mortgage is set with a fixed interest rate, and a fixed monthly installment for a time period decided earlier. The rest of the amount of the loan has to be paid off completely within a specific time.
A variable mortgage comprises fixed interest rate for a fixed amount of time. Generally, the time period is likely to change in future. A variable interest rate mortgage is sometimes called as the ‘adjustable rate mortgage’ or ‘ARM’.
Variable interest rate mortgage can be availed with lower rate of interest than fixed rate mortgage. They are considered suitable for a short term period as you can get the advantages of lower monthly installments.
By: Eshwarya Patel
